A global first for Ablrate – peer funding for aircraft

Since the recession major airlines and big leasing companies, which place large orders for dozens of huge aircraft, find it relatively easy to get funding from banks and investment firms.

Regional operators tend to buy just a couple of planes seating under 100 passengers at a time, making funding such deals less attractive as an investment proposition, with lenders demanding more collateral than before the financial crisis.

Ablrate offers two types of transaction for investors – fixed loans and auction. Borrowers will be established lessors or national airlines. The company currently has some 180 active investors on its platform.

David Bradley-Ward, Ablrate’s CEO, (pictured below) told Asset Finance International that for lessees going directly onto the platform the aircraft asset will be managed by Phoenix Aircraft Leasing an established aircraft leasing company owned by Tony Griffin an industry veteran. For capital equipment other than aircraft, assets will be managed by DS Finance and Leasing which is headed by John Lutterloch, chief executive of Industrial Investment Group and former MD of GE Capital Europe.

Ablrate, which was launched in the UK this summer, is already transacting business. Its first deal, involving an ATR-42 turboprop, raised £100,000 to help fund Phoenix’s aircraft to be leased to a government-owned Latin American airline. The transaction offers an interest rate of 10% and Bradley-Ward said that the rate on future deals could be as high as 13% depending on the level of risk and financing involved.

Bradley-Ward comes with a career background as an engineer in the Royal Air Force following which he moved into the financial services industry. After qualifying in the Chartered Institute for Securities & Investment in corporate finance, financial regulation and securities, he worked alongside a number of companies raising finance and structuring transactions in the UK and globally.

The formation of Ablrate had an interesting provenance. “The idea came about,” he said, “when we were asked to obtain funding on an aircraft that was to be purchased from a Polynesian airline and leased to a Latin American airline. The necessary deposit was available from Phoenix Aircraft Leasing and we had a major European bank willing to undertake the financing – all we needed was the mezzanine finance.”

He added: “We looked closely at P2P lending platforms to provide this but realised that it was completely beyond them. Consequently we came to an arrangement with the bank to provide the mezz loan. It charged a hefty fee for that and we realized we could have given a very good return to an investor for that level of finance – and still done better than the deal we were offered by the bank.”

The result was the establishment Ablrate – a peer lending platform for the leasing industry.

Evocative assets

“Aircraft are an evocative asset as well as a lucrative one,” Bradley-Ward said, “and with the advent of peer lending, we are able to offer everyday investors, asset managers and institutions unique access to this asset class. Thanks to the partnerships we’ve built up with leasing firms like Phoenix and DS Finance and Leasing, we’ve been able to secure a high quality and well stocked deal pipeline, covering both aircraft and capital equipment.”

In addition to Tony Griffin and Bradley-Ward the Ablrate team consists of:

• Philip Taylor (over 30-years senior management experience in the automotive industry more recently in aircraft finance);

• John Lutterloch, (pictured below) respected industry veteran, formerly held senior positions at Industrial Bank of Scotland, Security Pacific Leasing (Europe), Baltic Leasing and for five years managing director at GE Capital’s Northern European operations. In1994 he formed Industrial Investment Group; and

• Andy Sweeney, who comes with 16-years’ experience of debt capital markets gained working in major global investment markets. One of his roles in banking was to work creating liquid secondary markets for securities – and he looks forward to bringing that experience to the P2P market.

With currently some 36% of the world’s aircraft owned by leasing companies Bradley-Ward is optimistic for the future.

“In 2013 passenger travel exceeded three billion for the first time in history and it is predicted that 35,000 new commercial aircraft will be delivered at a value of $4.5 trillion over the next 20 years.

“In addition, in the next 10 years Asian, African and Middle Eastern airlines are forecast to triple the size of their fleets as global airline traffic is expected to double in the next 15 years. Of the 23,000 Western jets in service over 7,500 are on an operating lease.”

Assessing an Ablrate proposal

When assessing a transaction the company works in conjunction with its Sponsors who have either introduced the transaction or will be managing the transaction.

Bradley-Ward explained: “These Sponsors have their own internal credit procedures which they apply in their everyday business when assessing potential transactions. This means that when a loan request is uploaded to the platform we know that it has been vetted by industry experts. At this stage, however, we begin performing further due diligence on the parties involved, be it the borrower or the banks themselves.”

The major objective of obtaining information on a borrower is to ascertain whether the business and its management may be considered responsible and reliable. Financial information is required to give Ablrate needed data on the cash flow capacity of the borrower. A borrower’s ability to repay can usually be determined through an analysis of annual earnings against fixed expenditures and proposed new debt servicing commitments.

Ablrate has a tried and tested method (through management experience in the industry) for assessing potential lessees/lessors any other businesses.

He added: “We also perform due diligence on the asset in question and take great care in assessing valuations and the transaction’s profitability for a borrower. In assessing this we would look at the transaction as a whole and determine whether or not the interest being offered in a loan request is sustainable for the business and that particular transaction. This takes into account residual values, market trends and financial modelling of the transaction.

“We believe it is crucial to the profitability of our loan transactions to make sure that each loan request is profitable enough for all parties, has correct and adequate security, and has been thoroughly subjected to legal and financial due diligence.

Bradley-Ward highlights the quality of the new business. In one recent transaction “the borrower invested £750,000 of their own money in the deal, a European bank loaned over £3.5 million, the due diligence bill for the lawyer was in the six figures and the lessee is a government-owned airline. When it comes to the stability of the loan we believe that is pretty good compared to some offerings elsewhere in the P2P sector.”

Investing in a deal like the above would give a 10% return for six years which is likely to “boost any lender’s portfolio”. “There is also,” he stressed, “the opportunity to shorten the term by selling units on the secondary market as we develop that at Ablrate.”

Looking ahead, Bradley-Ward predicts a deal pipeline of £50 million in 2015 rising to £100 million by the end of 2016.

“We plan by then to have a loyal lending base with a good working experience of our platform. We are in it for the long term and intend to ensure that every loan on the platform is top quality.”

One of the biggest challenges Bradley-Ward envisages is for technology to keep pace with the plans he has for Ablrate’s growth. “The very model for P2P lending is changing by the minute, it will be a huge challenge for our systems providers to keep pace with the changes, but we have a roll out plan for the new platform in the coming months.”

www.ablrate.com